Analysts Revise S&P 500 Targets Ahead of Earnings Season

Over the past 12 months, the stock market has been on a tear.

Amid hopes of a Fed rate cut and excitement about artificial intelligence, the S&P 500 has surged 27%. That's far more than the average annual increase of 9% since 1990, according to Moneychimp.

Some experts believe this is overkill given the uncertainty surrounding the interest rate outlook.

Interest-rate futures suggest there is a 58% chance that the Fed will start cutting rates in June. But some economists, such as Torsten Slok of Apollo Global Resonance, think the central bank will not cut rates at all this year.

Some experts also believe that AI is overhyped. They point out that it is not yet clear what the financial impact of AI will be on individual companies.

Valuation at Historical Highs

In addition, valuations are at historically high levels. As of April 5, the forward price-to-earnings ratio for the S&P 500 was 20.5, according to FactSet.

This figure is higher than the five-year average of 19.1 and the 10-year average of 17.7. In both cases, the price increases exceeded historical norms.

"There's no one shouting from the rooftops that you have to sell at 20 times," Mark Hackett, investment research director at Nationwide Mutual Insurance, told Reuters." It's just that you obviously prefer to buy at 15 times."

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Vincent Mortier, chief investment officer at Amundi, Europe's largest fund manager, told Bloomberg, "With the over-optimism on tech stocks, I feel like we're in the early 2000s, when tech stocks crashed.

He said the problems in the commercial real estate market meant that there was "a little bit of a shadow of the financial turmoil that started in 2007".

Doug Kass of TheStreet Pro is a hedge fund manager whose career dates back to the 1970s.

• Geopolitical tensions (Middle East war),

• Worries about inflation,

• Interest rates are likely to be higher in the long term,

• Interest rates have been climbing for months,

• Commodity prices rose, especially for gold and silver,

• Market breadth is deteriorating,

• The mass of energy market leadership reflects the maturity of the bull market,

• Investor sentiment is extremely bullish.

However, some experts remain hopeful, noting that analysts are forecasting a 3.2% year-over-year increase in first-quarter earnings for the S&P 500, the third consecutive quarter of earnings growth.

The main financial results will be released on April 12th.

Wells Fargo's view on stocks

Wells Fargo equity analyst resonance Christopher Harvey is one of the bulls. He just raised his year-end target for the S&P 500 to 5,535, up from 4,625. He says the new target is the highest among Wall Street forecasters.

It was also up 7% from Tuesday's 5,182. The SPDR® S&P 500® ETF Trust, an exchange-traded fund that tracks the S&P 500 index (SPY) Up by 9.4%.

The fund manager buys and sells:

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In a note to institutional investors, Harvey writes that the market is "less worried about P/E ratios." The bull market, the long-term growth story of AI, and the concentration of indices have shifted investor attention from traditional valuation metrics to long-term growth and discount metrics."

He said that there might be a peak in volatility in the first half of the year, but there was an increasing likelihood of a "meltdown" in the second half of the year.

The so-called "meltdown" refers to a frenzy of buying in the market, usually triggered by the fear of missing an opportunity rather than by a fundamental analysis of the noodles.

"Partly as a result of the politics of supporting more tills, and partly in support of the expectation of a risky multi-year Fed easing cycle", Harvey said.

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The political outcomes presumably include a victory for Donald Trump, as the Biden administration has taken a restrictive stance on concurrency.

Harvey has not been oblivious to the obstacles that the stock market may encounter.

"We think systemic risk is rising as various incentives (such as monetary policy) fuel risk and leverage-seeking," he said. But in our view, systemic risk is not near the top.

As for equity sectors, Harvey suggests communications as an attack sector and healthcare and/or utilities as a defense." He said, "Such a grouping would allow investors to take advantage of the upside while providing attractive downside protection.

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